OUTLOOK '97: ECONOMY & INDUSTRY

Casino Giants Roll, but It's No Sure Thing for the Others

By JAMES STERNGOLD

Published: January 2, 1997

The ups and steep downs of the gambling industry in 1996 -- and the prospect of tough sledding ahead -- were perhaps best captured by two large casinos in Las Vegas, Nev., that opened last year, the Stratosphere and the Monte Carlo.

The Stratosphere, an intensively promoted $550 million 1,149-foot tower built by the small Stratosphere Corporation, opened, only partly completed, at a poor location, and it bombed. The company is flirting with bankruptcy. The Monte Carlo, on the other hand, is on the Strip, is well managed by its two owners, the giant Mirage Resorts Inc. and Circus Circus Inc., and its 3,000 rooms have remained largely full since the spring opening.

''I think the lessons are that this is going to be a year fraught with very high levels of competition,'' Jason Ader, an analyst at Bear, Stearns & Company, said. ''I don't have high hopes over all for the market. The big must-see properties in Las Vegas, like the Mirage, Circus Circus and the operations of MGM Grand Inc., they'll do O.K. But it takes a very solid business to do that in this environment.''

W. Bruce Turner of Salomon Brothers, added, ''It's been the march of the giants pretty much, and that is likely to continue.''

That message is proving true across the country. Atlantic City, which appeared early in 1996 to be on a trajectory of sizzling growth, has been stalled by a promotional war among the casinos and delays in the development of some huge new resorts in the Marina District.

The casinos in Atlantic City are giving away rolls of quarters to lure in slot players at the rate of $1.5 million a day, David Wolfe of Oppenheimer & Company estimated.

One of the victims of the weak environment has been Donald J. Trump's gambling concern, Trump Hotel and Casino Resorts Inc. The company has seen its stock plummet from a high of $35.50 in June to $12.

In addition, riverboat gambling, which swept the Midwestern states several years ago, was hit with greater competition and far greater selectivity among both gamblers and investors. The Bear, Stearns index of riverboat company stocks has fallen 46 percent from its peak in early June.

''I'm very concerned about the riverboats in the year ahead,'' Mr. Wolfe of Oppenheimer said. ''It takes something really special and very good management to beat the competition out there.''

And even in Las Vegas, a continuing supply of new hotel rooms and casinos is likely to maintain pressure on smaller companies. A total of 6,400 hotel rooms and 7,700 gaming positions were added in Las Vegas in 1996. In 1997, another 5,000 hotel rooms and nearly 10,000 gaming positions will be added, according to Salomon Brothers.

Over all, America's recently acquired ardor for gambling remains fairly strong; gambling concerns are believed to have taken in more than $45 billion in revenue in 1996.

But investors' fascination with the industry has dropped from the giddy heights of early 1996. The Bear, Stearns gambling stock index has tumbled from its peak in June despite the rise of the broader market indexes.

The wave of mergers that some analysts had predicted would shore up stock prices never materialized, aside from a few big transactions, like the Hilton Hotels Corporation's $3 billion purchase of Bally Entertainment.

''Massive consolidation is not going to happen,'' Mr. Wolfe said. ''The better players can borrow from the banks and build without paying a premium for an existing property.''

Lee Isgur, the gambling analyst at Jefferies & Company, said: ''The rich are getting richer, and the poor in the industry are getting poorer. Don't expect the magic of consolidation to change that.''

Brian D. Egger, the gambling stock analyst with Donaldson, Lufkin & Jenrette Securities, said his favorite stocks for the year were three of the largest companies: Circus Circus, Mirage and Primadonna Resorts Inc.

Mr. Isgur predicted that Hilton Hotels might surprise the industry by making another big acquisition in 1997, perhaps even making a run at Circus Circus.

His picks for 1997 include Station Casinos Inc., which is completing a big new riverboat in Kansas City, Mo.; Rio Hotel and Casino Inc., which is working on a renovation of its Las Vegas operation; Mirage, and Circus Circus.

''I look at it as a transitional year,'' Mr. Isgur said. ''I think 1998 is going to be more exciting, and toward the end of 1997 that will start to get through to people and help these stocks.''

Mr. Ader's principal picks for 1997 are Circus Circus and Mirage. Hilton, he said, will benefit somewhat from the cost savings as it absorbs Bally. The ITT Corporation, which owns Caesars Palace, is in a transition year because it is pouring more than $2 billion into renovating and expanding its casinos in Las Vegas and Atlantic City, and thus would be unlikely to improve before the latter part of the year.

Mr. Wolfe picked Circus Circus, MGM Grand and Sun International Hotels Ltd., which is managing the Mohegan Sun Casino in Connecticut and which owns Paradise Island in the Bahamas.

Photos: The gambling industry's divergent fortunes: In a bad location, a new Las Vegas casino, the Stratosphere, bombed . . . (John Gurzinski for The New York Times); . . . while another one, the Monte Carlo, situated on the Strip, has flourished. Its 3,000 rooms have remained largely full. (Associated Press)